Inflated RMD calculation due to excess contributions

Submitted by abura98 on Mon, 2017-03-27 22:50

Hi there,

Imagine I had excess 2016 contributions in my Traditional IRA on December 31st, 2016 (which I was ineligible to contribute as I turned 70.5 in December), and this inflated my FMV which I used to calculate my RMD for the year. Given this information, I have the following questions:

Should I remove the excess contributions and re-calculate my RMD? Or does the first distribution have to be the RMD? Technically, my RMD is based off the wrong number, so I am wondering if I can recalculate it based on the balance without the excess contributions.

Thank you so much for your help.



Submitted by Alan - IRA critic on Tue, 2017-03-28 00:41

  • The treatment of excess contributions does not work out well for an IRA owner because the year end value of the IRA on which the RMD is calculated must include any excess contributions for the current or prior years that are in the account at year end. However, any corrective distributions of the excess amounts do NOT count toward the amount of the RMD distributed. While this sounds punitive, IRA custodians should not be accepting regular IRA contributions for IRA owners who have reached 70.5, but many probably do not check DOBs before accepting contributions. A person could also have a higher balance due to making ineligible rollovers to a TIRA. Note that the rules for non IRA employer plans are also consistent with the IRA rules on this matter.
  • The first distribution is applied toward the RMD if it can be credited to the RMD. However, a return of an excess contribution does not count toward the RMD, and therefore you can do the corrective distribution either before or after RMD distributions. The corrective distribution will be coded as such on a separate 1099R and the IRS will consider that 1099R not to apply to the RMD. Again, the amount of your RMD calculation must be based on the actual balance in the account on prior 12/31, not an adjusted balance.

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